A new acronym that’s being thrown around a lot in crypto town these days is the STO. A lot of us are likely to wonder what an STO actually is and whether we really need to look out for the new kid that’s managed to find itself a spot in the limelight. Let’s try to find out the answers.
What is an STO?
STO stands for security token offering, a token that is linked to real securities, or even tokenized assets. Often, such tokens allow for having an actual equity in the company, allowing holders to have a real stake. It is quickly emerging as an important way to substitute venture capital financing and the private equity models of companies worldwide. When ICOs (initial coin offerings) had first appeared on the scene, they had been all the rage, making a splash wherever it went. However, its skewed risk-reward ratio rendered it untenable for venture capitalists soon and the lack of regulatory approval that routinely plagues the sector also served as a deterrent. This faltering popularity was the cue for STOs to make a silent entry and go on to take the crypto world by a storm as it combined the best of both worlds of ICOs as well as the traditional IPOs (initial public offerings). With a more stable risk-reward model and its backing by securities such as dividends, equities and profit sharing, STO is fast becoming the fundraising method of choice for certain kinds of companies looking to raise a large pool of funds.
Put simply, a security is nothing but a financial instrument acting in stead of an actual asset. A security token acts a lot like a traditional security such as a stock or a bond, except the fact that the holder of a token receives confirmation in the form of blockchain transactions. STOs can allow investors to enjoy revenue shares, voting rights, equities and dividends, making it a safer alternative for them than ICOs.
When might a firm need to use STOs?
If a firm is a large-scale one fuelled by fast expansion and growth and is raking in the mullah upward of $10 million each year, it might just be worthwhile to consider an STO. In particular, multinational companies or firms with a global operation that chooses to give out a transferrable asset should ideally go for this method of fundraising. This method entails higher levels of liquidity for all stakeholders and allows the company to engage more directly at the grassroot level, both in terms of its financiers and customers
Why should you go for STOs?
Firstly, it allows companies to raise funds from beyond the borders of their own countries. This allows them to tap a much larger pool of funding spread across the world. Moreover, this access to a global audience greatly expands a firm’s potential to reach out and build a larger, stronger customer base. STOs also allow companies to raise funds without losing control of their management positions and make it possible to tokenize several different instruments and assets without driving up the legal fees skywards. Finally, an STO is truly versatile because it can be extended beyond its security features to use the token to offer a host of benefits and services to users, as Hotel Crypto’s token (providing rate discounts to holders who rent a room) proved.
STOs are clearly the tokens of the hour, allowing a variety of benefits and conveniences firms can tap to raise funds or offer services.